code of ethics ethics_nirc_04...code of ethics –necessityas old as human civilization nothing but...

CODE OF ETHICS By..

CA. Shashi Gupta

[email protected]

© ICAI, 2017 1

CODE OF ETHICS – NECESSITY

as old as human civilization

nothing but the laws or rules of acceptable behavior

whole foundation of any profession, particularly CA profession, is its credibility

main ingredient of our profession is independence

sole purpose of Code of Ethics is to ensure and uphold this credibility

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Fundamental Principles

Integrity

Objectivity

Professional Competence and Due Care

Confidentiality

Professional Behaviour

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Other Services/ Work(alsoknownas Management ConsultancyServices)

Services that can be offered ??

Don’t offer PUB services:

P = Portfolio Management; U = Underwriting; B = Brokering

Section 2(2)(iv) read with Regulation 190A;

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Services that can be offered (Regulation 190A)

Authorship of books and articles.

Holding of Life Assurance Agency Licence for the limited purpose of getting renewal commission

Holding of public elective offices such as M.P., MLA & MLC.

Honorary office-bearership of charitable, educational or other non-commercial organizations.

Acting as Notary Public, Justice of the Peace, Special Executive Magistrate and the like. Part-time tutorship under the

Coaching Organisation of the Institute.

Valuation of papers, acting as paper-setter, head-examiner or a moderator for an examination.

Editorship of professional journals

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Services that can be offered (Regulation 190A)

Acting as surveyor and Loss Assessor under the Insurance Act, 1938.

Acting as Recovery consultant in the Banking Sector

Any coaching assignment organized by the Institute, its Regional Councils and Branches of Regional Councils.

Engagement as Lecturer in an University, affiliated college, educational institution, coaching organisation, private tutorship, provided the direct teaching hours developed to such activities taken together do not exceed 25 hours a week.

Engagement in any other business or occupation permitted by the Executive Committee from time to time.

Insurance brokerage

Insolvency Professional

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8© ICAI, 2017

KYC Norms for a CA in practice

Where Client is an Individual/ Proprietor

• A. General Information

• B. Engagement Information

Where Client is a Corporate Entity



• C. Regulatory Information

Where Client is a Non-Corporate

Entity



Types of Miconduct

Professional Misconduct

defined in part I, II and III of the First Schedule; and part I and II of the Second Schedule

Other Misconduct

- defined in part IV of the First Schedule and part III of the Second Schedule

- chartered accountant is expected to maintain the highest standards of

integrity even in his personal affairs

Discipline Procedure Mechanism

- First Schedule – Board of Discipline

- Reprimand / Removal for 3 months / fine upto 1,00,000

- Second Schedule – Disciplinary Committee ( Gravity of Misconduct – HIGH)

- Reprimand / Permanent Removal / fine upto 5,00,000

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Schedules to the Act

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First Schedule

Part I: Professional Misconduct in relation to CA in Practice

(No. of Clauses : 12)

Part II: Professional Misconduct in relation to Members of the

Institute in Service


Part III: Professional Misconduct in relation to Members of the

Institute generally


Part IV: Other Misconduct in relation to Members of the

Institute generally


Second Schedule

Part I: Professional Misconduct in relation to CA in Practice


Part II: Professional Misconduct in relation to members of the Institute

generally


Part III: Other Misconduct in relation to members of the Institute

generally (No. of Clauses : 1)

First Schedule:

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Part I

Professional misconduct in relation to Chartered Accountants in practice

Clause 1

• Allowing any other person to practice in his own name

Misconduct

• Other person CA in practice; and

• Is in Partnership; or

• Is in his employmentExceptions

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Clause 2

Of his professional business with Non-members

Any share, commission or brokerage in the

Fees; or Profits

Directly or Indirectly

Pays; or Allows; or Agrees to pay or allow

Professional Misconduct if

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Clause 2 (Contd…..)

Exceptions:

ICAIMember;

Partner;RetiredPartner;

Legal Representative

(LR) of deceasedpartner

Widow or LR of partner only if Deed provides;

Widow or LR of proprietor can receive only goodwill but no

participation in earnings of the firm

Member of other

specifiedprofessional

bodies;

Specified qualifiedpersons

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ProfessionalBodies [Regulation 53A(1)] (clause 2, 3, 5)

ICSI;

ICWAI;

Bar Council;

Indian Institute of Architects; Engineers

Institute of Actuaries

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Specified QualifiedPersons for Clause 2, 3, 4, 5

CS;

CWA;

Bachelor in Law (from recognised University or Institution);

Bachelor in Engineering;

Bachelor in Architecture;

Actuary;

B Tech;

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Clause 3

Any part of the profits of professional work from Non-member

Professional Misconduct if:

1.Accepts; or 2.Agrees to accept

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Clause 3 (Contd…..)

Exceptions:

ICAI Member;

Member of other specified professional bodies;

Specified qualified persons

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Clause 4


Enters intopartnership;

In or outside India with Non-members

Exceptions:

ICAI Member;

Member of otherspecified professional

bodies;

Specified qualifiedpersons

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Clause 5


Secures work from Non-members

Exceptions:

Employee;

Partner;

Other open means (e.g. Clause 6 or 7);

Persons as per Clause 2, 3 and 4

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Clause 6

Misconduct

Solicitation of clients or professional work

Solicitation can be direct or indirect through circular, advertisement, personal

communication, interview, etc.

Exceptions

Work from other CA in practice

Responding to tenders or enquiries

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Responding to TendersGuidelines w.e.f. 7th April, 2016

Shall not respond to any tender

in those areas of services which are exclusively reserved for CAs under any Law

But may respond if the minimum fee of the assignment is prescribed in the tender documentitself

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ICAI Clarifications on Clause 6 - Misconduct

Application for empanelment for allotment of audit or other professional work, where member does not know about such panel being maintained

Publication of the name of firm in the telephone directory ; Issuing hand bills;

Publication of books or articles, if it indicates his association with a firm of chartered accountants;

Issue of greeting cards or invitations with designation and firm name;

Roving enquiries;

Representation under Section sec 140(4)(iii) of CA 2013, which is long and unethical.

Giving public interviews which are intended to secure publicity

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Guidelines forWebsite

No standard format given; no restriction on the colours to be used;

individual members can have webpages in their own name or trade name;

websites should run on “pull model” and not on “push model” of the technology;

mentioning website address on the professional stationery is permitted;

the following information may be allowed to be displayed on the websites:

• member/trade name; year of establishment;

• member’s/firm’s address, telephone/fax numbers, e-mail ids; nature of services offered

• details of employees, job vacancies

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CA logo, passport size photograph permitted;

chat rooms can be provided which permit chatting amongst members of ICAI;

on line advice can be provided on a specific request, either free or on payment basis;

adequate secrecy of matters of clients handled through website should be maintained;

the listing of suitable search engine is permitted provided the field of search should be restricted only to the field of “Chartered Accountants” or “CA” or “Indian CA”, “Indian Chartered Accountant” or any permutations or combinations thereof;

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the website may provide links to the website of ICAI, its Regional Councils and Branches, Govt./ Govt. Departments/Regulatory Authorities

the website should not contain any information or material which is unbecoming for CA;

advertisement in the nature of banner or any other nature is not permitted;

the name of the client and the fees charged to them cannot be given;

the address of the website can be different from the name of the firm but such address should be as near as possible to the individual name/ trade name, or name of the firm. An intimation of this should be given to the ICAI within 30 days.

Date upto which it is updated

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Exception: The name of the client and fees charged from them can be given only if such information is required by a Regulator

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Clause 7

Clause 7

Misconduct

Advertising attainments or

services

Using unapproved or wrong

designations

Exceptions

Advertisingthrough Write Up

permitted

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Guidelines onWrite-up

The write-up should not be false or misleading and bring the profession into disrepute;

The write-up should not claim superiority over any other Member(s)/Firm(s);

The write-up should not be indecent, sensational or otherwise of such nature which may likely to bring the profession into disrepute;

The write-up should not contain testimonials or endorsements concerning Member(s);

The write-up should not contain any other representation(s) that may like to cause a person to misunderstand and/or to be deceived;

The write-up should not violate the provisions of the ‘Act’, Rules made there under and ‘The Chartered Accountants Regulations, 1988’;

The write-up should not include the names of the clients (both past and present);

The write-up should not be of font size exceeding 14

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ICAI Clarifications on Clause 7

Can advertise for recruiting staff in the members’ own office. However, the use of expression like “a very well known firm” should be avoided;

Can advertise on behalf of clients requiring staff or wishing to acquire or dispose of the business or the property;

Can advertise for the sale of a business or property by a member acting in a professional capacity as a trustee, liquidator or receiver;

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Clause 8

Clause 8

Misconduct

If no written communication with previous auditor before accepting the position as an

auditor

Exceptions

NIL

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Clause 9

Misconduct

If does not ascertain the compliance of Sec. 139,140,142 read with sec 141 of CA 2013 in

respect of his appointment

1. Section 224: Term ofAppointment, Casual Vacancy,Appointment by SR, Ceiling on Numberof Audits;

Sec. 140

2. Section 225: Right ofRepresentation

Sec. 139, 140 and 141

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Clause 9

Clause 10

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Misconduct

Fees on:

(i) % of Profits; or

(ii) Contingent Findings

Exceptions under Reg. 192

Liquidator/ Receiver on the basis of assets’ realisation;

Audit of Cooperative Society w.r.t. its paid up capital/ working capital/income;

On Direct taxes and duties in case of Valuation;

In certain management consultancy services on the basis of

findings/results;

Certain fund raising services

Debt recovery services

Services related to cost optimisation

Clause 11

Misconduct

Engaging in Other business/ occupation

Full time COP (+)Salary

Exceptions

1. ICAI Permission;

2. Director Simplicitor;

3. Employment in CA Firm;

4. Sec. 2(2)(iv) & Reg. 190A

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Clause 12

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Misconduct

Allowing non-members to signFinancial Statements

Exceptions

Issue of audit queries

Asking for information

Letter forwarding draft observations

Initiating and stamping of vouchers

Acknowledging and carrying on routine correspondence

Issue of memorandum of cash verification and other physical verification

Issuing acknowledgements for records produced

Attending to routine matters in tax practice

First Schedule:

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Professional misconduct in relation to members of Institute in Service

Part II

Clause 1

Clause 1

Misconduct

Paying/ allowing to any person share in employment

emoluments

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Clause 2

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Clause 2

Misconduct

Accepting any remuneration/ commission/ gratification from

counsels/ customers of the company/ firm

First Schedule:

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Part III

Professional misconduct in relation to members of Institute generally

Clause 1

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Clause 1

Misconduct

Not FCA but acts as FCA

Clause 2

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Clause 2

Misconduct

Does not supply info to ICAI/ comply requirements asked for by ICAI

Clause 3

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Clause 3

Misconduct

while inviting professional work from another chartered accountant or while responding to

tenders or enquiries or while advertising through a write up, or anything as provided

for in items (6) and (7) of Part I of this Schedule, gives information knowing it to be

false.

First Schedule:

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Part IV

Other misconduct in relation to members of Institute generally

Clause 1

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Clause 1

held guilty by any civil or criminal court for an offence which is punishable with imprisonment for a term not

exceeding six months

Clause 2

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Clause 2

brings disrepute to the profession or the Institute as a result of his action whether or not related to his

professional work

Second Schedule :

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Part 1

Professional misconduct in relation to Chartered accountant in Practice

Clause 1

Misconduct

Disclosure of information acquired during professional

engagement

Exceptions

1. Client’s consent;

2. Law Requirements

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Clause 2

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Misconduct

Certification/ submission of report on Financial Statements

without examination

Exceptions

1. Examination under his supervision;

2. Examination by other CA inpractice

Clause 3

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Misconduct

Permits his name to be used in connection with an estimate of

earnings contingent upon future transactions which may lead to believe that he is vouching the

accuracy of forecasts

Exceptions

Follow SAE 3400 – Examination of Prospective Financial Information

Clause 4

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Misconduct

Expression of opinion on Financial Statements of an entity with presence

of substantial interest (either himself/ his firm/ his partner)

Substantial Interest

1. Co. > 20% voting power;

2. Others > 20% profits

Relatives (as per AS 18) of CA alsocovered

Clause 5

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Misconduct

Failure to disclose “Material Fact”

Clause 8

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Misconduct

Fails to obtain information for expression ofopinion

its exceptions are sufficiently material to negate the expression of an opinion

Clause 9

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Misconduct

Failure to invite attention to any material departure to Generally Accepted Audit Procedure

Clause 10

Clause 10

Misconduct

1. Failure to keep client’s money in separate bank

account; or

2. Use such money within reasonable time

Even money recd. in capacity as trustee/ liquidator, etc. also

covered in this clause

Exceptions

1. Fees/ remuneration (evenadvance);

2. Reasonable time usage

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Second ScheduleClauses

1• Contravention of Act/ its Provisions

2

• Being employee discloses confidential information without consent of employer/ legal requirement

3

• Submits false information to ICAI/ its Constituents

4• Defalcates or Embezzles money received in professional capacity

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Clause 1

Clause 1

held guilty by any civil or criminal court for an offence which is punishable with

imprisonment for a term exceeding six months

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Opinion on financial statements when there is substantial interest (Chapter IV)

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A member of the Institute shall not express his opinion on financial statements of any business or enterprise in which one or more persons who are his “relatives” within the meaning of *Accounting Standard (AS-18) has/have, either by themselves or in conjunction with such member, a substantial interest in the said business or enterprise.

Books ofAccounts (Chapter V)

Practicing CA/ Firm to maintain proper books including:

Cash book

Ledger

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Tax Audit Assignments u/s44AB of the Income Tax Act, 1961 (Chapter VI)

Limited up to 60 in a financial year;

This limit is applicable on per partner basis;

Each year audit is a separate audit assignment;

Maintain record of assignments;

Part Time practicing CA shall not be considered

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Undisputed AuditFees (Chapter VII)

Exception : Audit of Sick Unit

“sick unit” shall mean where the net worth is negative

Undisputed audit fees, has not been paid by the entity to previous auditor

Guilty if appointment as an auditor accepted; where :

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Limits u/s 141 (3) (g) < 20; other than One Person/Small/Dormant/Pvt. Cos. with Share Capital < 100 cr

Maintain record of audit assignment;

Limit applicable to per practicing CA;

Part time practicing CA not counted

Number of Audit Assignments under Companies Act, 1956 (Chapter VIII)

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Now Section 141(3)(g) ofthe Companies Act, 2013

S. No. Name of the company

Registration Number

Date of Appointment

Date of acceptance

Date on which ADT-1 filed with RoC

Remunerationfor StatutoryAuditand Other Work (Chapter IX)

Other Work Fees > Statutory Audit Fees =

Guilty of Professional Misconduct

Applicable to “audit and other work” of only:

PSU; Govt. Co.; Listed Co.;Other Public Co. having

turnover > Rs. 50 crores in a year

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Remunerationfor Statutory Audit and Other Work (Chapter IX Contd…..)

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Guideline applicable to CA in aggregate (i.e. collectively to their

firm/ MCC/ associates/ Relatives etc.)

Other Work as per Section 2(2)(iv) & Regulation 190A but does not include

Audit under any other statute;

Certification work done by statutory auditors;

Representation before an authority

Appointment as Auditor whileindebted (Chapter X)

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In case of firm, if one partner is ineligible, then whole firm is

ineligible

Internal auditor, concurrent auditor not covered by this

Guideline;

Guilty if:

Accepts appointment as auditor

u/s 141(3) when indebted > Rs.

5,00,000;

Accepts appointment as auditor in

other cases when indebted > Rs.

10,000;

If other limits given by some other statute then they would be

applicable

In the case of large companies the practice of associating a practicing firm with less than five members as Joint auditors should be encouraged

Joint Audit

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Ratio Between Qualified and Unqualified Staff

At least one member for every five non-qualified members of the staff, excluding articled and audit clerks, typists, peons and other persons not engaged directly in such professional work

Auditors should make a disclosure of payments received by them for other services through the medium of a different firm or firms in which the said auditor may be either a partner or proprietor

Disclosure of Interest by Auditors in other Firms

64© ICAI, 2017

Mission"To work towards a dynamic and contemporary

Code of Ethics and ethical behaviour for members while retaining the long cherished ideals of

`excellence, independence, integrity' as also to protect the dignity and interests of the members"

© ICAI, 2017 129

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